All cases show a change from declining to increasing effective productive capacity beginning in 2000 and continuing through 2001 (Figures 1 & 2).

Natural gas effective productive capacity declined in 1999 - following a large decline in drilling - increasing the effective capacity utilization rate. Any rate over 90 percent effective capacity utilization can lead to price volatility (orange line on Figures 1 & 2). Effective capacity utilization rose to 95 percent in 1999. This supply tightness carried over into 2000.

This supply tightness, along with low gas storage levels and higher demand, created the conditions for price volatility and rising prices typically associated with high effective capacity utilization rates. An exceptionally cold November and December spurred gas demand and price increases.

Significant changes in drilling levels can affect both effective productive capacity and actual production in a relatively short time.

If drilling stopped completely, any surplus effective productive capacity would disappear in a matter of months.

Conversely, significant drilling increases can add significant increases in effective productive capacity in a matter of months. Such increases are expected throughout 2001.